EC urges retail uptake of ELTIF long term funds in sweeping update

The European Commission is keen to increase the uptake of European long-term investment funds (ELTIF) among retail investors through a raft of proposals it has detailed in a recent regulatory review.

The legislative package, which revises the regulatory framework for both ELTIF and the alternative investment fund managers directive (AIFMD), which would see a greater opening of the long-term fund structure to retail investors.

Following dedicated consultations last year, these recommendations will soon head for consideration by both the European Parliament and the Council of the EU.

The review includes four legislative proposals, covering both AIFMD and ELTIF, but also the European Single Access Point and a review of the Markets in Financial Instruments Regulation II (MiFID II).

ELTIF 

The primary goal of the ELTIF review is to increase the uptake of the structure, in particular with an eye to removing barriers to entry for retail investors.

These changes focus on a variety of issues, such as targeted amendments to fund rules through both broadening the scope of eligible assets and investments, and allowing for more flexible fund rules, including fund-of-fund strategies.

The review also seeks to reduce the barriers preventing retail investors from accessing ELTIFs, including the removal of both the €10,000 minimum investment threshold currently in place and the maximum 10% aggregate threshold requirements, and aligning suitability assessment with MiFID II rules.

Finally, the regulatory review aims to ease selected fund rules for ELTIFs distributed solely to "professional investors".

AIFMD

In its review of AIFMD, the European Commission aims to introduce new requirements for alternative investment fund managers that perform loan granting activities, ensuring the availability of liquidity management tools in exceptional circumstances, and postponing the concept of a depositary passport.

It also has further detailed substance requirements and provides some new requirements in case of delegation, such as where managers delegate more portfolio or risk management functions outside of the EU than they retain.

The Association of the Luxembourg Fund Industry (ALFI) highlighted that that several of the proposals would also lead to changes to the UCITS directive, with the AIFMD review text stating "the Commission considered that a number of issues highlighted in the AIFMD review are equally relevant for the activities of UCITS."

Responses

The European Fund and Asset Management Association (EFAMA) said it welcomed the EC's review of AIFMD, saying it "will make strides in advancing the Capital Markets Union" while maintaining "the framework which has underpinned a decade of growth in the European Alternative Investment Fund (AIF) market and proven resilient even throughout recent market stresses".

It added that it "welcomes the intention to mainstream the numerous reporting regimes applicable to AIFs and to reduce duplication among these. But the association equally points out that this should begin with an improved exchange of data between public authorities, particularly with central banks."

Tanguy van de Werve, EFAMA director general, said: "Tweaking a successful framework is a science in its own right and requires measured judgement and data-based input from relevant sources. If co-legislators can maintain the right balance, the revised AIFMD will provide asset managers with a refined framework that is future-proof for our industry and for investors."

"Generally, liquidity management tools should evolve in line with market practices," added Federico Cupelli, EFAMA deputy director for regulatory policy. "We caution against the introduction of overly prescriptive rules. The activation of these tools should be at the manager's discretion. It depends on the individual characteristics of the funds they manage."

Pat Lardner, Irish Funds CEO, said: "We support the Commission's targeted approach to the AIFMD review. We also welcome greater supervisory convergence as a key enabler of the further development of the EU's single market for investment funds, ensuring consistent AIFMD application and the highest standards of investor protection.

"We ask the co-legislators to maintain stability in relation to the AIFMD framework during the upcoming legislative debate to facilitate the objectives of the Capital Markets Union and an investment led recovery."

EFAMA also said it "firmly supports" the EC's review of ELTIF, though added that some parts "will require scrutiny". It highlighted its belief that regarding solutions that allow for more frequent redemptions, "further clarifications are needed, especially regarding the proposed Liquidity Window Mechanism and whether it will deliver on its intended objective as is."